As if Square (NYSE:SQ) needed more bullish support from analysts, the financial-technology company managed to garner yet another buy rating this week from Buckingham Research analyst Chris Brendler. The analyst upgraded his 12-month price target for the stock to $105. Brendler's price target follows another bullish call on the stock this week from Nomura Instinet analyst Dan Dolev, who recently gave Square a 12-month price target of $125.

While Square stock's 15% gain this week alone means Brendler's $105 price target implies just 6% upside from where shares are trading as of Thursday, it's still a bold call considering Square trades at a pricey valuation of about 15 times sales. So, what's behind Brendler's optimism?

A restaurant employee interacts with Square for Restaurants platform

Square for Restaurants platform. Image source: Square.

Getting to $105

"Square shares continue to defy traditional valuation paradigms, but we see no reason why the company can't continue its unprecedented momentum," said Brendler in a note to clients (via MarketWatch) this week. Backing up his view, Brendler cited the company's growing ecosystem of higher-margin services, the company's accelerating revenue growth rate, and its business model's scalability. "[W]e firmly believe Square's recent top line acceleration is sustainable," Brendler noted.

Brendler's bullish outlook for Square's revenue growth trajectory echoes Dolev's sentiment. "But is SQ too expensive?" Dolev said in a recent note to clients. "Not when taking into account its stellar 45% expected three-year revenue [compound average growth rate]."

Square's top line really has seen some uncanny momentum recently.

Metric

Q2 2018

Q1 2018

Q4 2017

Q3 2017

Q2 2017

Q1 2017

Total net revenue growth (YOY)

48%

45%

36%

33%

26%

22%

Adjusted revenue growth (YOY)*

60%

51%

47%

45%

42%

39%

Data source: Quarterly shareholder letters. *Adjusted revenue equals total net revenue less transaction-based costs, bitcoin costs, and the effect of deferred revenue adjustments related to purchase accounting. YOY = year over year.

Consider that Square's year-over-year adjusted revenue growth rate of 60% in its most recent quarter is significantly above the company's 42% adjusted revenue growth in the same quarter last year. The difference is just as impressive in Square's unadjusted total net revenue, which increased 48% year over year in Q2 2018 -- well over the 26% growth it reported in Q2 2017.

Is Square's valuation a concern?

Despite these analysts' optimism, investors would be wise to consider the risks of investing in a stock with such a premium valuation. Indeed, another analyst shared his concerns about Square's valuation this week. BMO Capital analyst James Fotheringham, who initiated coverage of Square stock this week with a "market perform" rating and a 12-month price target of $96, said that though he "admires" Square's recent execution, he worries about Square's "valuation sustainability."

For perspective, Square's price-to-sales ratio is far ahead of its most formidable competitor: PayPal. Its more mature peer has a price-to-sales ratio of just 7.5. But PayPal notably isn't growing nearly as fast; in the company's most recent quarter, revenue increased 23% year over year.

That said, though Square's business seems to be firing on all cylinders, investors may want to think twice before they buy shares at this level.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.